Knight Frank has taken the unusual step of suggesting a government proposal for the housing market is high-risk and could even provoke negative equity for some.
The Independent online newspaper claims that the government is considering one per cent deposits for first time buyers as a radical variation of the previous Help to Buy scheme, which saw some buyers able to purchase new build houses with only five per cent deposits.
Banks and building societies would have their mortgages - possibly up to 99 per cent of the property value - guaranteed by the government, according to reports based on government leaks.
However there remains scant detail about the idea, with no reference as to how this would help first time buyers pass payment affordability tests, even if they could afford the drastically reduced deposits required.
Now Simon Gammon, managing partner at Knight Frank Finance, has spoke out. He says: "The popularity of the scheme will depend on how the lenders opt to price these mortgages. If they are competitive, take up will be substantial, but getting rates competitive will require the government to underwrite quite a sizable proportion of the loans.
"Fuelling demand to this degree without a massive surge in housing supply will undoubtedly fuel house price inflation. There is also the very real prospect that any falls in house prices will leave many buyers in negative equity, with the taxpayer on the hook in the unfortunate circumstance that borrowers aren't able to meet their payments.
"It's quite a high risk strategy, and it illustrates just how few options the government has if it wants to help first time buyers in meaningful numbers in the short term."
The house building industry has backed the idea, saying it can’t build more homes - and this boost supply - unless more people can actually be able to purchase them.
Labour deputy leader and shadow housing secretary Angela Rayner was quoted in the Independent saying the idea “completely failed to address the supply of affordable homes, or lift a finger to reform our broken planning system which has forced a generation of young people to give up on the dream of home ownership.”
And an unnamed senior Labour figure told the paper: “The truth of this issue is that you can’t have a serious housing policy without a real plan to drive up supply.”
The Liberal Democrats also spoke against the idea, claiming it was ironic that the party responsible for higher mortgage rates - as a result of the Liz Truss premiership - now wanted first time buyers to have 99 per cent mortgages.
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This is a fundamentally bad idea from a government that clearly is hell bent on home ownership whilst simultaneously destroying the PRS it left to grow (and taxed very healthily). They have no clear idea on how to create a fair and well balanced society. There is more than one answer. Some people will own and some people will rent. The more you mess about with either market the more you drive the price up. Just leave it alone and focus on building MORE homes!
Yes, Knight Frank is correct. 1% deposits will raise the prices of homes. Quite how the government will back the scheme should it fail after a few years of there being a significant takeup is anyone's guess. Put simply, if the government doesn't have the money to build 100,000 homes a year and intends to continue the £ 47 billion sell-off of right-to-buy dwellings, there is little chance the government will bail out lenders or first-time homeowners.
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